Question

Locate the annual report for Lowes and Home Depot. These can be obtained from either the company websites or from SEC.gov.

Submit a paper providing the following:

                Provide an analysis of the two companies. This analysis should contain information about the industry, the companies and a financial analysis. The financial analysis will include information provided by ratio analysis comparing the two companies.

                The most important question I want you to answer is: Which company would you invest in and why? The why being the most important. There is no right or wrong answer to the question of which company, the answer is right or wrong based on how you support your answer with the why.

Answer 1

Home depot has negative shareholder's equity as it has huge debt amount, but it also generates good income. Return for shareholder equity and price/earning ratio are not good for Home Depot. During the period of good economy, leverage for the company like Lowe's can considered to be good. But during the bad times of economy, Lowe's would be at risk. So, keeping all the factors in mind, Home Depot is a safe and better investment.

Explanation:

Lowe's Homes Depot

• Net profit margin 0.0324 0.102779
• Return on shareholder equity 0.63501647 -5.92173
• Current ratio 0.98144444 1.108459
• Debt to equity 4.49149286 -15.5298
• Inventory turnover 3.85327601 5.1
• Earnings per share 2.84 9.78
• Sales for last 3 years

2018	71,309	108,203
2017	68,619	100,904
2016	65,017	94,595

• Return on invested capital 0.128 0.448
• P/E ratio 32.7253521 19.37935
• Debt ratio 0.8944013 1.042679
• Debt/EBIT 7.68143355 2.954346
• Dividend yield 1.9% 2.4%

Note: All amount are in Million, except for EPS and ratios.

HOME depot inc. and Lowe's company inc. both operate and belong to same industry, which is home improvement retail space. They both have different perspective for investment. In the last decade Home Depot's has shown growth for 755%, whereas Lowe's shows the growth of 431%.

Home depot has higher inventory turnover, which means that this company is efficient and better at turning over their inventory. Even the net profit margin for home depot is also better the Lowe's. Current ratio of former is better that the latter. Sales for both the companies are increasing, but Home Depot generates higher margin over sales than Lowe does. It even provides better return on capital invested.

Home Depot has a huge amount of debt in the capital structure as compared to Lowe's. But on contrary, Home Depot has 4 times of EBIT amount as of Lowe's EBIT. Dividend yield for Home Depot is also better. Return for shareholder equity and price/earning ratio are not good for Home Depot.

Apart from financial home depot has better stocking system, process of customer service, better human resource, etc. It is running successfully in international markets.

Home depot has negative shareholder's equity as it has huge debt amount, but it also generates good income. Return for shareholder equity and price/earning ratio are not good for Home Depot. During the period of good economy, leverage for the company like Lowe's can considered to be good. But during the bad times of economy, Lowe's would be at risk. So, keeping all the factors in mind, Home Depot is a safe and better investment.